Podcast
Questions and Answers
What is primarily included in a financial plan's revenue forecast?
What is primarily included in a financial plan's revenue forecast?
Why is short-term financial planning often referred to as budgeting?
Why is short-term financial planning often referred to as budgeting?
Which of the following is NOT included in projected expenses?
Which of the following is NOT included in projected expenses?
What should be constantly monitored in a budget?
What should be constantly monitored in a budget?
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Which of the following represents a potential issue a financial plan can address when downsizing?
Which of the following represents a potential issue a financial plan can address when downsizing?
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What type of accounting is typically performed internally within an architectural firm?
What type of accounting is typically performed internally within an architectural firm?
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What does projected income depend on?
What does projected income depend on?
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What is the primary purpose of accounting in an architectural practice?
What is the primary purpose of accounting in an architectural practice?
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Which statement about audits is correct?
Which statement about audits is correct?
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What factor should NOT be considered when estimating profits for long-range financial planning?
What factor should NOT be considered when estimating profits for long-range financial planning?
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Why is it important to consider a client’s payment history when preparing a cashflow forecast?
Why is it important to consider a client’s payment history when preparing a cashflow forecast?
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How often should a cashflow forecast be updated?
How often should a cashflow forecast be updated?
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Which of the following roles can assist in managing financial data?
Which of the following roles can assist in managing financial data?
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What is a crucial factor in determining the fees for accounting services?
What is a crucial factor in determining the fees for accounting services?
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What is not typically included in proper financial management according to the content?
What is not typically included in proper financial management according to the content?
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What key relationship should an architect develop when managing finances?
What key relationship should an architect develop when managing finances?
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What software consideration is essential for Canadian practices?
What software consideration is essential for Canadian practices?
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Which of the following is a deliverable that should be established with an accountant?
Which of the following is a deliverable that should be established with an accountant?
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What is one of the benefits of practicing good financial management?
What is one of the benefits of practicing good financial management?
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What aspect of an accountant's responsibilities is emphasized in the content?
What aspect of an accountant's responsibilities is emphasized in the content?
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Study Notes
Financial Planning
- A financial plan is a set of guidelines that use trends and best estimates.
- The revenue forecast is the starting point, used to create other lines of the plan:
- Strategic goals and objectives
- Revenue projections
- Target for profit
- Budgets for overhead expenses including capital expenditures
- Staffing plans
- Financial plans should identify income and expenses for new initiatives:
- Delivery of new services
- Hiring new staff
- Research and marketing
- Purchasing or leasing new premises
- Financing professional development and training
- Purchasing or leasing new furnishings, equipment and software
- Financial plans are also necessary for downsizing, which may involve:
- Relief from a lease for office space
- Restructuring
- Short-term financial planning is called budgeting and usually covers a 12-month period.
- Some firms split the year into 13 equal periods, each 4 weeks long.
- Budgets should be constantly monitored, usually on a monthly basis and should include records of the previous year's revenue and expenses.
Budgeting
- Projected income includes:
- Work-in-progress
- Anticipated professional income
- Other anticipated income
- Projected expenses include:
- Estimated expenses
- Changes in expenses
- Increased expenses to meet long-range planning targets
- Profits are usually estimated as a percentage of projected revenues.
Accounting
- Accounting is the process of recording financial transactions, assessing the information, and summarizing it to produce financial statements.
- There are two types of accounting:
- Internal accounting
- External accounting
- Internal accounting, sometimes called management accounting, is done within the architectural practice.
- External accounting, usually performed by an independent accountant, includes:
- Preparation and examination of financial statements
- Providing an opinion on the financial position of the practice
- An audit is an independent and objective examination of accounting records and other necessary documentation to express an opinion on the fairness of a balance sheet and other financial statements.
Cashflow Forecasting
- Cashflow forecasts should consider a client's payment history as many clients take longer than 30 days to pay invoices.
- The forecast should be monitored every month by comparing actual revenues and expenses with those forecast.
- The forecast should be updated quarterly.
Financial Professionals
- Bookkeepers, non-certified accountants, and Chartered Professional Accountants (CPA) can all work with financial data.
- Accountants should advise on the type and extent of financial services required for the size and complexity of the practice.
- Keeping proper books of account will make an accountant's task easier, resulting in lower fees.
- General ledger
- Accounts payable
- Accounts receivable
- Payroll records
- Architects should establish a clear understanding with their accountant, including:
- Services to be provided
- Deliverables or financial reports
- Professional fee
- A rapport built on trust and transparency
- Architectural practices are not required to hire only CPAs.
- They can hire bookkeepers or non-certified accountants for various responsibilities, such as:
- Preparing internal financial reports
- Recording day-to-day transactions
- Invoicing clients
- Managing collections
- Performing account reconciliations
- Maintaining records
Bankers
- It is essential to establish a professional relationship with a banker.
- Architects should avoid having to finance day-to-day operations by establishing a capital reserve.
- When funds are not required for operation, it is possible to "tender" for bank service fees by asking multiple banks for quotes.
- Instead of acquiring a short-term loan, many businesses negotiate a line of credit which can be used as needed.
- The best time to negotiate for a line of credit is when financing is not required.
- The interest rate charged by the bank will be expressed as a percentage over the "bank rate" or "prime rate".
- The bank will consider financial performance, budgets, and long-range financial plans when deciding to loan funds.
Taxes
- Goods and Services Tax (GST) or Harmonized Sales Tax (HST) must be collected on all income.
-
Employees' income tax is deducted for every employee for every pay period.
- This includes federal and provincial income taxes, CPP, and EI.
- Personal income tax is usually based on the previous year's income taxes and should be remitted in quarterly installments.
-
Provincial sales tax (PST) is paid as supplies are purchased.
- Architectural practices do not usually collect PST unless these supplies are sold again, except in Québec where Quebec Sales Tax (QST) must be collected.
- Corporate taxes, if the practice is incorporated, will be estimated by the accountant and should be remitted quarterly.
-
Business taxes are charged by some municipalities for operating a business in their jurisdiction.
- Some municipalities require a business license for architectural practices to provide services for a project located in that municipality, even if the practice is located elsewhere.
- Penalties for late payment of taxes are severe.
Software
- Accounting and time-counting software and apps can assist in organizing, recording, and accessing financial information.
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Description
This quiz covers the essential components of financial planning, including strategic goals, revenue projections, and budgeting. Learn about the importance of forecasting income and expenses for new initiatives and the necessity of financial plans for downsizing. Test your understanding of the various aspects that contribute to an effective financial strategy.
